A recent study by Washington Post reveals that majority of Americans are not aware about how a credit scores is obtained and the ways by which it affects consumer chances to qualify for car loans, mortgage and credit card applications.
The Consumer Federation of America and Washington Mutual Inc. commissioned the 1,000 adult American respondents in the survey. The study reveals further that the understanding of the average American about credit scores has remained static since 2008.
Consumer Federation of America executive director Stephen Brobeck admits that even those with good credit scores considerably lack information on where they obtain their ratings from and its implications to their credit management. The following are among the most significant findings in the survey:
- Only a two percent (2%) increase had been registered over the past five years for the percentage of Americans who know the purpose of credit scores—from 27 to 29 percent.
- An increase in the percentage of Americans who think that age, education, and income had also been recorded.
- A majority of the respondents also stated belief in the notion that their ethnicity and state residence affect their credit scores.
- An overwhelming 76 percent of the respondents do not know the usual minimum score to qualify for non-expensive mortgage which is at 700.
The range of the Fair Isaac Corp.’s FICO score from 300 to 850 is also among the information that nearly all of the respondents are not aware of.
- A lot of respondent-borrowers also do not know that FICO scores under the threshold of 600 are usually charged with higher “subprime” loan rates while those with scores at 760 and over get the lowest rates.
- Finally, the respondents, as consumers, are mostly unaware that their credit scores are given by the three major credit bureaus—Equifax, Experian, and TransUnion.
Causes for the significant knowledge deficiencies on credit scores include unexplained procedures to credit card applicants, reasons for the rejection of credit card applications rarely highlight credit scores even if they are major determinants and the things that comprise credit scores and how their weight affect applications are not made transparent.
Credit scoring had also been used for more than a decade now in consumer loans and finance companies. Government rules and regulations have also been in place specifically in the Equal Credit Opportunity Act’s Regulation B that guard against questionable variables in unfair credit scoring models.
In the aspect of the law, credit cardholders should also know the following measures that the government has taken to protect consumers:
- Stricter regulatory requirements and amendments in the Fair Credit Reporting Act
- Legal credit scoring model provided in the Equal Credit Opportunity Act
- Free annual credit report examination by the individual, also for those with rejected credit card applications
- Availability of appeal for in questionable grounds for declining credit card applications
- All information significant for the applicant’s appeal must be accessible, also in the event of law suits filed by applicants for company evaluation processes deemed discriminatory or statistically invalid.
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Tags: Credit Score, Score
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